When it comes to buy here pay here (BHPH) financing, you’re going to need a down payment to get approved for a car loan.
Down Payments and Bad Credit
If you’re battling with a tarnished credit score and you need a car, a BHPH dealership could be your solution. However, you’re going to need to have a sizable down payment ready.
You can generally expect a down payment requirement of around 20% or more of the vehicle’s selling price. BHPH dealers only sell used cars, so the selling price of the vehicle you choose, and therefore your down payment requirement, can vary wildly.
These dealerships want to see that you’re invested in the auto loan, since they don’t normally perform a credit check to consider you for financing.
Larger Down Payments Mean Savings in Your Pocket
Although a BHPH dealer may require a large down payment, you can always put down more than the minimum amount required. In fact, putting as much as you can down is an especially good idea for bad credit borrowers. Additionally, a bigger down payment means a lower monthly payment.
It’s no secret that bad credit borrowers may not get the best interest rates available – lenders usually offer the best rates for the best credit scores. While you may be faced with a higher interest rate than you’d like, putting money down can help throughout the loan term.
Putting cash down means you’re financing less – which means you’re charged less interest. Car loans are almost always simple interest loans, where interest charges are based on what you owe, not the amount you originally financed. Therefore, the bigger your down payment, the less you pay overall due to the decreased interest charges.
Should I Finance Through a BHPH Dealership?
If you’ve had some heavy damage on your credit reports recently, such as a repossession, a BHPH dealer may be your best shot at auto loan financing. Most lenders won’t approve a borrower with a repo that’s less than a year old.
BHPH car loans typically have higher interest rates since dealerships don’t do a credit check. This is one of the trade-offs of in-house financing. In-house financing simply means that your dealer is also your lender, and they don't rely on a third-party lender to approve and fund the loan.
However, if you were looking to improve your credit score with an auto loan, it may not happen with a BHPH dealership. Some don’t report your car loan to the credit bureaus, so your loan and on-time payments won’t appear on your credit reports. Most, however, report missed and late payments to the bureaus, so your credit score can still be further damaged even if the loan isn’t initially reported.
Other Auto Loan Options for Bad Credit Borrowers
If you’re looking to rebuild your credit and get into a reliable vehicle, there is another type of bad credit lender you can look into: a subprime lender. These lenders work through a dealer’s special finance department, and evaluate more than your score and credit reports to consider you for financing.
Subprime auto loans are reported to the credit bureaus, so your loan and timely payments can improve your credit score over time. An improved credit score means better interest rates and more credit opportunities, as well as possibly qualifying for better deals in the future.
Subprime lenders look at your credit reports, but they also look at your monthly income, as well as your work and living stability. However, they also require a down payment. Typically, you can expect a subprime lender to require at least $1,000 or 10% of the car’s selling price (sometimes whichever is less).
Finding a Bad Credit Dealership
Locating one of these lenders means finding a bad credit dealership, which isn’t always easy. But we want to help with that! Here at Auto Credit Express, we have created a network of special finance and BHPH dealers that spans the whole country.
Using our auto loan request form, we connect borrowers with all types of credit situations to dealerships near them with bad credit lending options. Our form is completely free, secure, and there’s no obligation to buy. Once it's complete, we’ll get to work for you right away!